Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

FedEx Corporation (FDX): Don’t Miss the Upside Potential of This Stock

Page 1 of 2

It’s very easy to get caught up in the trap of following quarterly earnings in so much granular data that developments in the long term trends can easily be missed. At times, investors are too quick to expect managements to hit quarterly guidance while not focusing on any strategic changes being made. In the case of FedEx Corporation (NYSE:FDX), this would be unfortunate because its numbers reveal some fascinating trends in the economy and the stock offers decent upside.

FedEx Corporation (NYSE:FDX)

Federal Express, or should it be Federal Ground?

I’m going to cut to the chase by graphically demonstrating the changes in the composition of FedEx Corporation (NYSE:FDX)’s operating income over the last decade.

Up until 2008, the company generated the bulk of its profits from its express service, but ever since the recession, its ground-based revenues have taken over. Why is this so? And what does it mean for FedEx Corporation (NYSE:FDX)?

The three reasons why

The first reason is that — as its management points out — international trade is growing slower than global GDP. This may appear to be counter intuitive, particularly in an increasingly integrated global economy, but, it is a fact. The story of the early 2000’s was one of ongoing strong demand from increasingly consumerist western societies leading to an export led growth boom in China and other Asian economies. As we all know, that party is over for the moment, and China is under pressure to shift towards a balanced economy where domestic demand plays a larger part.

The second consideration is that while we are in a lower growth global economy, it is categorized by oil prices above $100. I recall how we used to fret about oil prices over $30 and speculate how much this would shave of global growth if it occurred! Well $100 oil prices look here to stay and one consequence has been a ‘trading down’ effect where FedEx Corporation (NYSE:FDX)’s customers are more willing to use its slower and less expensive ground services rather than faster, more expensive express services.

The final argument is that the increasing growth of e-commerce has generated strong secular growth prospects for its ground services. In fact, in its last results, FedEx Corporation (NYSE:FDX) outlined that average daily volumes at its SmartPostdivision were up 25%, being primarily driven by e-commerce growth.

Moreover, its rivals like Deutsche Post are investing heavily in parcel shops in order to service e-commerce growth. This is a notable plus in a European economy which is categorized with stagnant growth. Furthermore, Deutsche Post is seeing notably declining demand for traditional mail. It’s been an interesting few years for Deutsche Post as it deals with these changes as well as the disposal of Postbank.

These kinds of structural changes have affected FedEx Corporation (NYSE:FDX). It appeared to gear itself up for a level of demand for its international express revenue that never really came. Consequently, it has under-performed its main rival, United Parcel Service, Inc. (NYSE:UPS).

UPS Gross Profit Margin TTM data by YCharts

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!